There have been several news accounts in recent days of plans for the Federal Reserve Board to reduce the amount of assets on its balance sheets. It currently holds close to $4 trillion in assets as a result of the quantitative easing policies pursued to boost the economy in the years following the collapse of the housing bubble. It is now making plans to reduce these holdings.

One implication of this reduction in holdings would be a lower amount of money refunded to the Treasury each year. The Fed keeps some of the interest from these holdings to pay operating expenses and pay a dividend to its members, but the overwhelming majority is refunded back to the Treasury.

Last year, the Fed refunded $113 billion or 0.6 percent of GDP to the Treasury (Table 4-1). According to the projections from the Congressional Budget Office, this figure is projected to fall sharply to 0.2 percent of GDP in the next couple of years as the Fed reduces its holdings. Over the course of a decade, the difference in the amount rebated to the Treasury between a scenario where the Fed continues to hold $4 trillion in assets and one in which most of the assets are sold to the public would be on the order of $900 billion. 

Deficit hawks routinely get very excited over sums that are less than one tenth of this size. For this reason it seems worth mentioning the budgetary implications of the Fed's decision to offload its asset holdings. (For those keeping score, having the Fed keep the assets is equivalent to financing the debt in part by printing money, a position advocated by several prominent economists, including Ben Bernanke.)